Goldman: Groceries Could Launch Amazon Into The Stratosphere

An
unmanned Falcon 9 rocket blasts off from Cape Canaveral Air Force
Station on Florida April 18, 2014. TReuters

Selling groceries is likely to be huge for Amazon, Goldman says
in a new note.

The firm added shares of Amazon to its "Conviction List," this
morning, saying the company currently represents, "one of the
best risk/reward propositions" in the tech sector.

Goldman is particularly bullish on Amazon's investment in
AmazonFresh, its grocery delivery service currently available in
Southern and Northern California, and Seattle.

Goldman says AmazonFresh, "could prove a major catalyst for
revenue growth and long-term profitability at Amazon." The firm
says Fresh is
a chance for Amazon to increase its sales volume, adding
that online sales in
grocery currently comprise just 0.5% of the $1 trillion
industry.

New players
have also made significant gains in the grocery space before.
Goldman points out that since 1996, Walmart has grown grocery
sales from 0% to 56% of its total sales. Goldman notes that since
1998, grocery has represented 64% of Walmart's total growth each
year.

Bringing Fresh
to up to 25 cities over the next five years could require
investment of up to $1 billion per year, Goldman said. But the
firm says Amazon has one of the best track records in the market
in getting high returns on its investments, also noting that,
"ongoing investment in fulfillment and infrastructure will widen
Amazon's competitive lead."

Goldman said
that Amazon's network of trucks for AmazonFresh could also
improve margins in its last mile fulfillment network.

Goldman said
that from current levels, Amazon shares have about 20%
upside.

Shares of the
tech giant have underperformed the S&P 500 over the last
year. They were trading up 1.5% Wednesday.

Goldman Sachs

Disclosure: Jeff Bezos is an investor in Business Insider through his
personal investment company Bezos Expeditions.